Macro Funds: An investment strategy that is primarily an opportunistic "top-down" approach, based on shifts in global economies. Hedge fund managers that specialize in this strategy base their investment decision-making on economic outlook and speculate on changes in countries' economic policies, changes in currency and interest rate, and mis-pricing in general. The use of derivatives and leverage is not uncommon.
Managed Futures: An investment strategy that invests in listed financial and commodity futures markets and currency markets around the world. The managers are usually referred to as Commodity Trading Advisors, or CTAs. Trading disciplines are generally systematic or discretionary. Systematic traders tend to use price and market specific information (often technical) to make trading decisions, while discretionary managers use a judgmental approach.
Management buy-out (MBO): A private equity firm will often provide financing to enable current operating management to acquire or to buy at least 50 per cent of the business they manage. In return, the private equity firm usually receives a stake in the business. This is one of the least risky types of private equity investment because the company is already established and the managers running it know the business - and the market it operates in - extremely well.
Management Fees: A fee collected by the manager that typically offsets any fund expenses. The fee is usually asset based, and is, on average, 1% collected either on a monthly, quarterly, or annual basis.
Mandatory Redemption: is a right of an investor to require the company to repurchase some or all of an investor's shares at a stated price at a given time in the future. The purchase price is usually the Issue Price, increased by Cumulative Dividends, if any. Mandatory Redemption may be automatic or may require a vote of the series of Preferred Stock having the redemption right.
Mark to Market: When securities are sold short they are placed in a short account within a general margin account. The resulting credit balance is isolated within the short account and adjusted weekly by the brokerage firm by a process called "marking to the market." This is an accounting procedure required for maintaining the credit balance in the short account equal to the market value of the short positions.
Market Capitalization: The total dollar value of all outstanding shares. Computed as shares multiplied by current price per share. Prior to an IPO, market capitalization is arrived at by estimating a company's future growth and by comparing a company with similar public or private corporations. (See also Pre-Money Valuation)
Market Neutral: A type of investment strategy that is intended to be "neutral" to traditional market volatility. The strategy seeks to provide a stated or absolute return rather than attempt to outperform a traditional market index. The goal is to attain the target return regardless of broad market direction.
Market Timing: A top-down investment strategy that shifts capital from one asset class to another, profiting from movements in interest rates and equity markets. It usually involves large commitments to one or more asset classes depending on the economic or market outlook, with a portfolio frequently being invested 100% in either stocks, bonds or cash equivalents. It is based on anticipating the timing of when to be in and out of markets.
Master-feeder fund - A common hedge-fund structure through which a manager sets up two separate vehicles -- one based in the U.S. and an offshore fund that is domiciled outside the U.S. -- which serve as the only investors for a third non-U.S. fund. The two smaller entities are known as feeder funds, while the large offshore vehicle acts as the master fund. The purpose of such an arrangement is to create a single investment vehicle for both U.S. and non-U.S. investors.
Merchant banking: An activity that includes corporate finance activities, such as advice on complex financings, merger and acquisition advice (international or domestic), and at times direct equity investments in corporations by the banks.
Merger: Combination of two or more corporations in which greater efficiency is supposed to be achieved by the elimination of duplicate plant, equipment, and staff, and the reallocation of capital assets to increase sales and profits in the enlarged company.
Mezzanine Debt - Debt that incorporates equity-based options, such as warrants, with a lower-priority debt. Mezzanine debt is actually closer to equity than debt, in that the debt is usually only of importance in the event of bankruptcy. Mezzanine debt is often used to finance acquisitions and buyouts, where it can be used to prioritize new owners ahead of existing owners in the event that a bankruptcy occurs.
Mezzanine Financing: Refers to the stage of venture financing for a company immediately prior to its IPO. Investors entering in this round have lower risk of loss than those investors who have invested in an earlier round. Mezzanine level financing can take the structure of preferred stock, convertible bonds or subordinated debt.
Middle-market firms: Firms with growth prospects of more than 20 percent annually and five-year revenue projections between $10 million and $50 million. Less than 10 percent of all start-ups annually, these entrepreneurial firms are the backbone of the U.S. economy and attractive to business angel investors.
Mortgage-Backed Securities - A type of bond that represents a large pool of individual mortgage loans. Investors receive monthly interest and principal concurrent with the payment of the loan by the borrower. Most mortgage loans are backed by an agency of the U.S. government.
Multi-Strategy: An investment strategy that involves utilization of several distinct strategies such as growth, risk arbitrage, macro, etc. in an effort to gain increased diversification. Funds of Funds are typically multi strategy.
Mutual Fund: A mutual fund, or an open-end fund, sells as many shares as investor demand requires. As money flows in, the fund grows. If money flows out of the fund the number of the fund's outstanding shares drops. Open-end funds are sometimes closed to new investors, but existing investors can still continue to invest money in the fund. In order to sell shares an investor usually sells the shares back to the fund. If an investor wishes to buy additional shares in a mutual fund, the investor must buy newly issued shares directly from the fund. (See Closed-end Funds)